Friday, June 16, 2017

The hardline liquor prohibition policy of the previous
United Democratic Front (UDF) Government in Kerala was debated more as a
political issue than for its economic rationale. The outcome of this policy
indicated that popular political whims could have serious unintended
consequences. While there is an absence of systematic data indicating a decline
in the use of alcohol, there are sufficient data indicating that drug abuse
became prevalent following restrictions in the sale of liquor. This was enough
evidence for the incumbent Left Democratic Front (LDF) Government to roll back
the policy of prohibition. The LDF government’s new liquor policy is more a
political statement that challenges the existing policy intended to phase out
liquor sales in Kerala. Several bars with three and four-star status that were
closed following the ban are proposed to be opened under the new policy. There
are conflicting data on the exact number of bars that will start functioning in
the state. The new policy has also raised the minimum age to purchase and
consume liquor to 23 years. Moreover, the policy would give the toddy industry
a big push by allowing the sale of toddy in bars. While the license fees to
sell liquor through stores and other outlets are hiked, the new policy appears
to liberalise the sector by increasing access to liquor in the state. However,
the liquor industry in Kerala is still strictly controlled by the government, as
it is in many other states in India.

As the new policy becomes operational, it is important
to ask if it proposes any novel initiative that could transform the liquor
sector of Kerala. A crucial transformation that liquor businesses in Kerala
require is not mere access to liquor but access to quality liquor through
quality outlets. If the new liquor policy cannot guarantee this aspect of
liquor trade, then dingy bars and crowded consumer outlets will make a comeback
in the state. Is there anything that the state of Kerala could do to
effectively modernise these outlets? If there is then what are the constraints
that prevent the State Government from taking specific steps towards this goal?
Buying liquor from outlets in Kerala could be a time-consuming exercise at any
time of the day. Long queues in front of these outlets are a common sight. Those
who find it difficult to stand in queues have little choice but to visit bars,
where taxes still pull up the price of liquor. Will the new liquor policy bring
respite to the plight of these consumers? Increasing the price through taxes is
supposed to be a disincentive for liquor consumers. The logic is that if liquor
becomes unaffordable, people would buy less and thereby the state could
demonstrate its commitment to the health of its citizens. This has not been a
successful policy in Kerala.

Lack of asymmetric information alone does not cause market
failure in the liquor sector of Kerala. Addiction that leads to overuse or
abuse, which, in turn, begets crime, accidents and health hazards is a major
worry. If prohibition has not been able to tackle these issues for a long time,
it is worth experimenting what a liberal market in liquor has to offer. To
formulate an effective liquor policy, we need to accept the fact that there is
a large market for quality liquor in Kerala. The successive governments in
Kerala have acknowledged that liquor is a major tax earner but have failed to
accept that it is the market that creates this potential to tax and thereby
provide revenue to various other state activities. Hence, the requisite is to
support the market for liquor and frame rules that could make this market
effective by avoiding failures. Even amidst aggressive taxing strategies as
well as isolating the outlets in dingy corners, the market for liquor in the
state has survived and seems to be thriving. This is indicative of the
insatiable demand for the product. This also suggests that any attempt to
control the liquor market would lead to a proportional increase in black
markets.

The logical alternative then is to
set certain broad rules for the liquor sector and liberalise the industry
allowing access to foreign as well as local players. Alcohol consumption and
sales are still a male-dominated sector in Kerala. Allowing retail chains to
sell high-quality liquor products could change these gendered notions. Once we
overcome such conventions, the sector could be a major source of employment for
all genders. Such retails would better the choice available with the people and
allow consumers to choose between vendors. Competition will then be among the
vendors to ensure quality of products and services. Competition will allow the
industry to set better standards not only in responsible drinking but also in
ensuring that consumers have a choice between dingy outlets and well-maintained
stores.

*The author is Research Consultant at Centre for Public Policy Research. Views expressed by the author is personal and does not reflect that of the organisation.

Wednesday, June 14, 2017

India is
predominantly an agrarian economy with a large section of its population
depending on the sector for their livelihood. Cattle form a vital part of
agriculture and allied activities. Various estimates suggest that India has a
large bovine population with approximately 303 million cattle and water buffaloes
alone. More than 60 million small and marginal farmers own a major part of
these animals, which directly aid agriculture and form an essential part of the
dairy and meat industry. The meat producing industry depends mostly on the
unorganised sector for sourcing the products. This unorganised sector includes
animal markets as well as slaughter houses. Estimates put the number of
slaughter houses in the unorganised sector in India at 25000. The meat industry
in India is estimated at approximately $15000 million. Various departments
under the Ministry of Health and the Ministry of Commerce regulate the functioning
of these markets.

It is in the
context of these huge business prospects in the meat industry in India that the
‘Prevention of Cruelty to Animals (Regulation of Livestock Markets) Rules, 2017’
needs to be examined. The new regulatory framework attempts to regulate animal
markets by introducing a set of rules restricting the sale of animals in these
markets. Animal market in India is largely in the form of an open market with
little formal controls. The rule provides a loose definition of a market to
accommodate this informality. Accordingly, an animal market is defined as, “… a
market place or sale-yard or any other premises or place to which animals are
brought from other places and exposed for sale or auction and includes any
lairage ... slaughter house ... and any place adjoining a market ... parking
areas by visitors to the market ... animal fair and cattle pound where animals
are offered or displayed for sale or auction.”

As such, the
new regulations on animal markets could be a crucial step in formalising the
markets and making efficient allocations within a formal structure. This could be
considered as a novel initiative to reform the animal markets. However, we need
to probe more into the functioning of such markets to understand the effect of
the new rule on business transactions. An efficient market should be allowed to
function freely with broad rules to ensure effective transactions between
buyers and sellers. In the least, entry and exit from these markets should be
convenient and prices tending towards competitive levels.

The
Regulation of Livestock Markets Rules, 2017, is likely to create more hurdles
towards a competitive market structure and bring in undue controls disrupting
the existing animal markets. For instance, the rule constitutes the creation of
a new bureaucratic framework called the Animal
Market Monitoring Committee, which will make it difficult for poor farmers to
sell animals in these markets. A major hurdle is that such animals cannot be
sold in the markets for the purpose of slaughter. Selling of cattle between the
states is also restricted. Proof of sales (five copies to be maintained by not
only the buyer and seller but also the local government officials, Chief
Veterinary Officer and Animal Market Monitoring Committee) as well as documents
to prove farmland ownership rights will be monitored by the authorities under
the Animal Market Monitoring Committee for each sale of animals. These
restrictions and documents make it extremely difficult for the small and
marginal farmers to dispose of their old cattle stock to the meat producers
through animal markets. This, in turn, is likely to affect not only the
livelihood of these farmers but also the large meat export industry in India.

In India, multiple
laws govern animal trade and various agencies monitor the trade at different
levels. Since the State Governments have a major say in the matter, animal
traders have to deal with the Central, State and Local Government legalisations.
While each State Government has defined its own rules, governmental departments
including health, Food Safety and Standards Authority of India (FSSAI),
Pollution Control Board, Police etc monitor the trade. What matters the most are
the rules and regulations that restrict opportunities for small and medium
enterprises. It is easy to find fault with them, as they may not have the wherewithal
to oblige to conform to the technical requirements that the law stipulates. In
a way, these issues are similar to the challenges faced by street vendors. There
is a need to study the matter carefully so that the smaller players could also
make a decent living doing a decent job. These rules seem to be restricting
them from trade and increasing opportunities to harass them.

D Dhanuraj is Chairman of Centre for Public Policy Research and Rahul V Kumar is Research Consultant at Centre for Public Policy Research. Views expressed by the authors are personal and does not represent of CPPR